Kenneth Rijock

Thursday, April 17, 2014

THE PREPAID DEBIT CARD AND UNDISCLOSED CHARGES

The explosion of so-called prepaid debit cards in the financial marketplace should alert you that a small minority of unethical distributors, seeking to impose excessive, and cleverly undisclosed, charges and fees upon unsuspecting users, have hooked onto what they regard as a source of windfall profits.

Let's be clear about our terms:

(1) A credit card is an extension of credit, given as needed, by an issuer, to a user. The user has no money on deposit; he must repay the debt, to keep his credit line in good standing.

(2) A debit card is simply a card that provides ready access to your bank account, and users draw out their money at will, directly from their balance, and without any extension of credit, to pay bills and make purchases.

(3) A prepaid card is good only for the amount of money that is electronically deposited, from time to time, directly onto the card. It is a good fit for employers who wish to place wages and salaries on cards, one-time users who have no credit card to make specific purchases, travelers, businessmen who don't want to carry cash, and for gifts.

(4) What is described by some distributors as a Prepaid Debit Card, is an inconsistency in terms; all debit cards are prepaid; the problem is that some unethical prepaid debit card distributors employ a curious device known as a "pre-funding account." This means that the money first goes into the distributor's account, and is then, minus whatever charges and fees the distributor chooses to deduct, loaded on the card; The user is ambushed. Some Prepaid debit card distributors deduct excessive and undisclosed charges immediately

Some online prepaid card distributors, who are often not registered with either FinCEN or their state department of financial regulation, as a money service business, and work out of post office boxes or disposable email addresses:

(1) Fail to specify exactly what costs will be taken from the card, giving the company carte blanche to be abusive. This is obviously a violation of the law.

(2) Hold the funds "temporarily," claiming that they are either clearing, or that processing is taking place, neither of which is true and correct. This may be a major temptation for the distributor to quietly decide to borrow funds, or take even more illegal and/or clearly excessive charges.

(3) Steal money outright. The Internet is full of such stories, especially where the user's account is abruptly closed, without reason, and only some of the funds are returned, after a substantial delay.

(4) Sell the cards for a substantial fee upfront, and then fail to perform. They think that most unbanked individuals are too poor to bring a civil action, or complain to consumer authorities.

Bottom line: there's no such thing as a prepaid debit card. It is a prepaid card. If you want a debit card, go to a real bank and get one; don't rely upon non-bank fraudsters and fee gougers to obtain one; you may regret it. If you need a prepaid card, get a prepaid card. Do not get anything were your money goes through a third party before being loaded, the so-called prepaid debit card.